What the 2021 Budget means for construction
The Chancellor of the Exchequer has today (3 March) delivered his 2021 Budget, promising a three-part plan to protect jobs and livelihoods, strengthen public finances and begin to build the future economy and multiple measures intended to deliver the Government's 'build back better’ agenda. The CIOB policy team looks at what these measures will mean for the construction industry.
The Chancellor of the Exchequer has today (3 March) delivered his 2021 Budget, promising a three-part plan to protect jobs and livelihoods, strengthen public finances and begin to build the future economy.
Opening his statement, Rishi Sunak MP noted that the Office for Budget Responsibility (OBR) is forecasting a “swifter and more sustained recovery” than they were expecting in November, now predicting that the economy will recover to its pre-Covid level by mid-2022 – six months earlier than expected. The OBR forecasts that the economy will grow by 4 percent this year, then 7.3 percent in 2022.
The Budget announces multiple measures intended to support businesses and stimulate the economy, and was accompanied by the publication of the Government's plan for growth, called Build Back Better, which details capital spending plans for the next year. Below, the CIOB policy team looks at what these measures will mean for the construction industry.
Covid-19 support schemes
The construction industry has relied upon Covid-19 support schemes over the past year in order to keep sites open. Some 244,100 construction workers are currently furloughed and the top 50 contractors claimed up to £1.1 million in furlough in December alone, meanwhile 747,000 construction professionals have claimed from the self-employment income scheme (SEISS).
The Budget sets out plans to extend and expand Covid-19 support measures, introducing several new schemes.
The Coronavirus Job Support Scheme (‘furlough’) will be extended across the UK until September 2021. The scheme will continue in its current form until the end of June, before an employer contribution towards the cost of unworked hours is introduced at 10 percent in June, 20 percent in August and 20 percent in September.
The SEISS will also be extended to September 2021, with a fourth grant worth 80 percent of three months’ average trading profits covering February to April, and a fifth grant covering May to September. For people whose turnover has fallen by over 30 percent the fifth grant will cover the full 80 percent of three months’ average profits, while those whose turnover has fallen by less than 30 percent will receive a 30 percent grant, capped at £2,850. The scheme will also be expanded to include the newly self-employed, covering anyone who filed a 2019-20 tax return.
A new Recovery Loan Scheme will replace the Coronavirus Business Interruption Loan Scheme and Bounce Back loans and will be introduced from 6 April 2021. The new scheme will provide lenders with a guarantee of 80 percent on eligible loans between £25,000 and £10 million and will be open to all businesses, regardless of whether they’ve accessed the previous loan schemes.
A VAT Deferral New Payment Scheme – where any business that took advantage of the original VAT deferral on returns from 20 March to 30 June 2020 can use a new scheme to pay their deferred VAT in up to 11 instalments from March 2021, rather than one large payment due by 31 March as was originally announced.
Crucially for the residential construction sector, the Budget contains provisions to extend the temporary Stamp Duty Land Tax (SDLT) holiday to 30 June for homes under £500,000, and the nil-rate band extended to homes under £250,000 until 30 September 2021. The CIOB has joined the Construction Leadership Council (CLC) in calling for the holiday to be extended and have therefore welcomed this announcement.
A new mortgage guarantee scheme will also be introduced in April 2021 to support the housing market, offering government-backed guarantees to lenders who offer 95 percent mortgages on homes with a value up to £600,000.
The Chancellor set out plans to increase the rate of corporation tax from April 2023 to 25 percent, to “balance the need to raise revenue with the objective of having an internationally competitive tax system.” However, a new small profits rate will mean that profits under £50,000 will continue to be taxed at the current 19 percent rate, and businesses with profits under £250,00 will receive relief so that they still pay less than the main rate.
A 130 percent ‘super-deduction’ was also announced for companies investing in qualifying new plants and machinery. This tax incentive will see taxes cut by 25p for every pound invested in new equipment.
VAT reverse charge & IR35
The Chancellor’s commitments centre around supporting businesses, however we are concerned that Government’s implementation of the Construction Services Domestic Reverse Charge, known as the VAT Reverse Charge (VRC), will undo some of the benefits to the construction industry from the Covid-19 support schemes.
At a time where small and medium-sized businesses need support the most, the introduction of the VRC will cause many to take a cashflow hit. Under the new legislation, subcontractors will no longer receive VAT payments for their services, unless they are working directly for the end client. This means that many who relied on VAT to help cover costs between payments will face the biggest hit to their cashflow. In addition, many companies will have to update their accountancy software to ensure that it can account for the new changes.
This is coupled with IR35 which is set to come into place next month. Originally, IR35 was set to be implemented in April 2020 but was pushed back to April 2021 due to the uncertainty caused by the pandemic.
The introduction of a complex new system that both contractors and clients must understand comes with administration and financial costs. We have gone into further detail about the impact of IR35 on construction in a blog here.
Some clients have already stated they will introduce a blanket ban and require workers to come through agencies or an umbrella company to avoid the responsibilities of complying to the complex system of IR35. If clients in the industry introduce blanket bans many contractors will be at risk of incurring additional charges by going through an umbrella company or agency in order to be hired.
Construction professionals need to be focusing at this time on measures that will ensure the sector rebounds from Covid-19 in a sustainable and safe manner, not worrying about technical rule changes like IR35 and VAT Reverse Charge. By forcing contractors down this route, it will cause an unnecessary financial burden during a time where Government has pledged to financially support businesses to grow.
The Budget states the intent for the UK to make the most of global opportunities after its exit from the European Union (EU). As part of this, the Government intends to create eight new Freeports in England, areas where businesses can benefit from more generous tax reliefs, simplified customs procedures and wider government support, bringing investment, trade and jobs which intend to regenerate regions across the country that need it the most.
Eight new English Freeports will be based in East Midlands Airport, Felixstowe & Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside. Subject to agreeing their governance arrangements and successfully completing their business cases, these Freeports will begin operations from late 2021.
Freeport zones will benefit from an enhanced 10% rate of structures and buildings allowance for constructing or renovating non-residential structures and buildings, as well as an enhanced 100% capital allowance for investment in plant and machinery for use in freeports, and complete relief from SDLT and business rates until 30 September 2026.
Discussions are also said to be ongoing between the UK Government and the devolved administrations to ensure the delivery of Freeports in Scotland, Wales and Northern Ireland as soon as possible.
Retrofitting and green investment
Despite the Chancellor pledging to put green investment at the heart of the economic recovery, the Budget lacks detail on the environmental impact of the built environment. It is well established that urgent action must be taken to decarbonise the built environment if we are to meet net zero by 2050, yet recurring failed policies continue to deplete the time we have left to address the climate emergency.
There was no mention in the Budget statement of several key elements of the Government’s net zero strategy, including its infrastructure plans, battery supply chain ambitions, retrofitting strategy and the much-criticised Green Homes Grant (GHG) scheme. The Chancellor, however, announced a new UK Infrastructure Bank with £12 billion equity and debt capital to finance private sector and local authority infrastructure projects across the UK, helping meet Government objectives on climate change and regional economic growth.
As detailed in our response to the Budget, we are calling for an ambitious national retrofit strategy to provide a clear direction of travel for the construction industry and the certainty that businesses need to create stable, green jobs beyond 2022. The construction sector is united in its message that we must move away from a piecemeal approach and towards a coherent and sustained programme of activity if we are to improve the energy efficiency of our buildings. The new UK Infrastructure Bank announced in the Budget presents a significant opportunity to prioritise funding for a national retrofit strategy and to help demonstrate global leadership on climate change in preparation for COP26 in November this year.
Lastly, the Government will issue at least £15 billion of sovereign green bonds (Green Gilts) this summer, to help finance critical projects to tackle climate change, fund important infrastructure investment, and create green jobs.
Apprenticeships and training
The Chancellor announced a £126 million boost for traineeships for 16–24-year-olds, which CIOB has welcomed as a positive step towards addressing the construction industry’s well-documented skills shortage. Employers who provide trainees with work experience will also continue to be funded at a rate of £1,000 per trainee.
Several other schemes and measures were also announced in the Budget, including:
Payments for employers who hire new apprentices – The Government will extend and increase the payments made to employers in England who take on new apprentices. Employers who hire a new apprentice between 1 April 2021 and 30 September 2021 will receive £3,000 per hire, compared with £1,500 per new apprentice hire (or £2,000 for those aged 24 and under) under the previous scheme.
Supporting apprenticeships across different employers – The Government will introduce a £7 million fund from July 2021 to help employers in England set up and expand portable apprenticeships. This will enable people who need to work across multiple projects with different employers to benefit from the high-quality long-term training that an apprenticeship provides.
Help to Grow – A new scheme to offer up to 130,000 companies across the UK a digital and management boost. Further information is available here.
Modern Methods of Construction (MMC) Taskforce
The Chancellor acknowledged in his statement the need to create the conditions for an investment-led recovery which is spread across the UK. As part of this, the Ministry of Housing, Communities and Local Government (MHCLG) will establish a Modern Methods of Construction (MMC) Taskforce at their new office in Wolverhampton. The Taskforce will be backed by £10 million seed funding, to accelerate the delivery of MMC homes across the UK, with a particular focus on working with local authority and City Region Mayors.
In recent years the CIOB has developed a strong partnership with the University of Wolverhampton, investing in a physical space at their School of Architecture and Built Environment with the objective of furthering the construction management profession. We hope that we will be able to develop a strong working relationship with stakeholders in Wolverhampton to further the significant opportunities associated with MMC.
Budget for the whole United Kingdom
An additional £2.4 billion is promised for the devolved administrations in 2021-22 through the Barnett formula, as well as targeted investment in Scotland, Wales and Northern Ireland. It specifies that the majority of the Covid-19 support measures will apply to individuals across the UK, including furlough, the Recovery Loan Scheme, the super-deduction scheme and the new UK Infrastructure Bank.
Specific infrastructure funding was announced for the Aberdeen Energy Transition Zone, Global Underwater Hub and North Sea Transition Deal in Scotland, as well as accelerated funding for three Growth Deals. In Wales, the Budget allocates investment to the Holyhead hydrogen hub and the Global Centre of Rail Excellence, as well as accelerated funding for three Welsh City and Growth Deals.
The Chancellor also announced that the first round of applications for the £4.8 million Levelling Up Fund opens today, with the Budget stating that this fund will “support local areas across the UK to invest in infrastructure that improves everyday life.”
Read the CIOB’s response to the 2021 Budget here.